Examination of Witnesses (Questions 120-139)
ANGELA EAGLE
MP
3 FEBRUARY 2009
Q120 Martin Horwood: Is that not
a completely self-defeating strategy because if you use a discount
rate and a shadow price for carbon which assumes everything is
going to succeed, thereby you give yourself permission to do the
very things that will actually undermine it?
Angela Eagle: You have to look
at the overall cost of emissions and mitigating emissions overall
in a global context. I do not think there would be much support
for work to deal with climate change if we said that particular
sectors somehow could not change or expand. Clearly, the overall
level of emissions is what is important. I think that if you look
at global emissions, you have to look at all sectors together
and not particularly say that you cannot have any expansion in
airport capacity or aviation going into the future.
Q121 Martin Horwood: I was not thinking
about aviation at all. Are you going to use this shadow price
of carbon for all sectors?
Angela Eagle: The shadow price
for carbon is what is used for policy appraisal across government.
The Stern analysis was about imagining a scenario and trying to
cost in a business-as-usual, no mitigation scenario. That is why
there is a difference between them,
Q122 Martin Horwood: He was recommending
a methodology, was he not, for us to use in policy? That was the
whole point of the analysis.
Angela Eagle: He had a methodology
in which he was trying to price the cost of no action and then
price the cost of mitigation to demonstrate, I think, that the
price of doing nothing is greater than the price of taking action
in terms of costs of GDP, as Mr Challen was talking about earlier,
if we take action now. His analysis enabled us to come to the
conclusion that the faster and the sooner we take action, the
cheaper it would be. I know there was again controversy about
how we calculated this cost of carbon but he justified his methodology
in the piece of work he did.
Martin Horwood: It was controversial
amongst traditional economists because it took a long-term view.
Q123 Joan Walley: Given that exchange,
may I ask what steps you have taken as Exchequer Secretary to
the Treasury to satisfy yourself that the Treasury guidance which
relates to this, and which relates to the economic impact assessments
that have been carried out, are actually fit for purpose and take
account of the environmental imperatives that are subsequent to
the 2003 Aviation Transport Paper and come about as a result of
the Stern Report and the Government's response to it?
Angela Eagle: These are very technical
issues as indeed are—
Q124 Joan Walley: They are technical
but they matter.
Angela Eagle: I understand that
they matter. I met regularly with Lord Stern to talk about how
we proceed in this entire environment. I am satisfied that we
have the approach right, but clearly we are in a circumstance
where times are changing quickly and analyses may have to shift
too, especially as the requirement for even more carbon abatement
gets stronger and stronger.
Q125 Joan Walley: It is too late
now, is it not, because the Government has already made the decision
on Heathrow?
Angela Eagle: The Government clearly
has made the decision on Heathrow that is obviously controversial
and of which some people do not approve. Again, I am not one of
those who thinks that the battle against climate change means
that we should artificially restrict air travel. We need to ensure
that we develop better, greener aircraft. I think that part of
the answer to this would hopefully be a worldwide agreement of
the EU ETS type for aviation, which would mean that we could cap
global aviation emissions. I am extremely happy that we have managed
to negotiate aviation as a sector into the EU Emissions Trading
Scheme, and I think that approach is the one that we probably—
Q126 Joan Walley: My question is
about the Treasury guidance.
Angela Eagle: All right. I am
satisfied that the Treasury guidance is fit for the purpose that
it was intended but, as with all of these things, we keep it under
review.
Q127 Martin Horwood: May I ask one
last supplementary on this theme, since we are on it. Based on
your discussions that you have just said you had with Lord Stern,
if we invited him back here to ask him whether he agrees with
your use of the discount rate so much higher than the one he recommended,
do you think he would say you were right or wrong?
Angela Eagle: You would have to
ask him. I am not going to second-guess what Lord Stern may wish
to say to you about these things.
Q128 Martin Horwood: Can I move on
to green taxation? The basket of broadly defined green taxes as
a percentage of tax in 1999 was about 9.7%. In 2007 that had fallen
overall to 7.4%, almost consistently fallen each year. If you
look at it as a percentage of GDP, in 2007 it was only 2.7%, which
is the equal lowest figure since 1993. There was an original policy
statement I think to try to shift the burden of taxation away
from "goods" such as employment to "bads"
such as pollution. Is that strategy abandoned now?
Angela Eagle: We have our green
taxes still in place doing that job. I think that the decline
that you are talking about is almost completely due to the fact
that we have not kept the fuel escalator that was in place when
the previous government left office in place in terms of fuel
duty. I think it is important with respect to that that we balance
costs and practicalities as rising petrol prices, as we saw last
year for example, do cause hardship. We have to balance that out.
I think you will find that the difference in those percentages
is caused by the fuel duty policy.
Q129 Martin Horwood: I think there
were other contributors. Air passenger duty was one; a freeze
in the climate change levy rates was another. Is it still government
policy to increase that percentage again? Are you committed to
reversing that downward trend?
Angela Eagle: The important thing
about green taxes is that they help us change behaviour. It is
not always the most important aspect of green taxation that we
have large amounts of money coming into the Treasury coffers from
green taxes. Some of the best green taxes work when they change
behaviour to such an extent that you do not get income from them.
So there is a paradoxical element here. When you are trying to
shift behaviour so people do not pollute, so people recycle and
they change their behaviour in that way, if you tax the bad behaviour
and they change their behaviour, your revenues from those taxes
by definition go down. It is not always the best way of looking
at whether you are making progress in these issues to look at
the income that you are getting from green taxation. I suppose
that is what I am saying to you.
Q130 Martin Horwood: We are not talking
about the absolute income. We are talking about the proportion
of taxation that comes from this kind of taxation as opposed to
the kinds of things that tax jobs like National Insurance. It
was your Government's commitment in 1997 to shift that burden
more towards things like green taxation. I am just trying to tease
out whether that policy still stands.
Angela Eagle: As I say, I think
the reasons for the decline have been pragmatic ones. You are
arguing essentially that we should have kept the fuel escalator.
If we had done that, then I think your constituents might have
had something to say about it. You have to ensure that when you
are taxing things like fuel, which people do need to get about
their daily business, that you take a sensitive approach to that.
I think you have to remember as well that there are other ways
of ensuring that transport can be greened rather than just fuel
duty. These things shift around.
Q131 Martin Horwood: I was not particularly
identifying one green tax, but if we shift forward then to the
Pre-Budget Report, is your impression that the overall package
of tax measures will shift that burden again towards green taxation
or not?
Angela Eagle: The way that we
define green taxation in the Treasury is by things like the Climate
Change Levy where we actually recycle the income. We have changed
behaviour that way. I suppose you could say that we could make
major structural changes to taxation, which would be very much
larger than the changes we have made—for example, the way
the Liberal Democrats say they can shift to green taxes away from
income taxes. It has not been the Government's view that we should
shift our structure to that extent. You can take radical or pragmatic
approaches to this. We have taken a pragmatic approach.
Q132 Martin Horwood: I think the
radical approach might turn out to be more pragmatic than your
approach.
Angela Eagle: Time will tell.
Q133 Joan Walley: Could I turn to
air passenger duty and ask why, when the 2008 budget said that
the replacement of air passenger duty with a duty payable per
plane would send "better environmental signals and ensure
that aviation duty better reflects environmental costs" that
has been scrapped in favour of a charge per plane?
Angela Eagle: We did an extensive
consultation about the announcements that we made and we also
did analysis about the extra carbon that it would save. It was
marginal and there were significant difficulties with freight
and the potential effects on regional airports of the shift, particularly
since we could not do it in a European context, There were potential
problems as well of losing particularly freight but not only,
sometimes hubbed passengers as well, to other European Union airports.
There were some issues around that that gave us pause for thought.
Given then the shift in the economic cycle and the approaching
economic downturn, we felt that it was better to improve the environmental
signal of the existing tax, the APD, and maintain as far as we
could a stable environment for the aviation industry in the economic
circumstances we were in. Our view was also assisted by the welcome
agreement for aviation to go into EU ETS by 2012.
Q134 Joan Walley: As for the detail
of that, as I understand it, the rate for short haul economy flights
to APD in 1997 was £10 but under the new rates that have
come in it would be £12 in 2010-11. I wonder how what effectively
is a reduction helps change behaviour, given the importance that
you attached earlier on to green taxes changing behaviour.
Angela Eagle: I think that the
changes were to introduce two new bands and to have them based
on distance travelled as the best proxy that we can get for environmental
attempts. If you look at the changes to the costs of the more
long haul flights, you will see that is where the tax is. If you
are saying that you want us to prevent domestic flights happening,
then the changes in APD would have been much greater for short
haul rather than long haul flights, but we have chosen to set
the rate as a proxy for distance travelled and emissions in that
sense, rather than say people should not use short haul flights.
Q135 Joan Walley: That is very much
a decision that is linked with a long-term transport infrastructure
planning in respect of rail and so on. We had evidence earlier
from the Campaign for Better Transport and the Director, Stephen
Joseph, indicated that he had written to the Chancellor urging
him to open talks with President Obama on revising the Chicago
Convention so that governments could tax international flights
in terms of fuel. I am curious to know whether or not the Chancellor
will be doing this.
Angela Eagle: We have certainly
been pushing as the UK for a renegotiation of the Chicago Convention,
which is plainly anachronistic and prevents the appropriate taxation
of fuel for aviation on a worldwide basis in what is clearly a
global industry. I do not know whether the Chancellor has penned
this letter yet, but certainly the UK has been a longstanding
proponent of renegotiation of the Chicago Convention. I have to
say that there has not been a lot of enthusiasm for it across
the Atlantic. Perhaps the new Administration will take a different
view.
Q136 Chairman: The collapse in the
oil price of course is a particularly good moment to try to raise
this issue.
Angela Eagle: Yes. We are aware
of that.
Q137 Chairman: Can we go back to
vehicle excise duty? The Pre-Budget Report greatly watered down
some quite bold proposals that were announced in the budget last
year. Why was that?
Angela Eagle: We have not changed
the structure of the way that VED is being restructured at all.
We will still have first year allowances or rates. I think that
we felt, given where we were with the economic downturn and the
price of petrol as was then, that we had to ease this change in
perhaps over a longer period of time than we had originally wished
to do.
Q138 Chairman: Let us just separate
new cars from second-hand cars here. First of all on new cars
where there is clearly a collapse in sales currently that has
been emerging in the last three months or so, are you going to
lose your nerve on new cars as well? We have the budget watering
down the proposals for new cars and VED?
Angela Eagle: My best response
to you on that is to say that it is not my job to come here and
speculate about what is going to be in the budget.
Q139 Chairman: Go on, do it?
Angela Eagle: It might get me
into some difficulties.
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